Understanding Medicare: Parts A, B, C and D

For Americans 65 years of age and older, as well as for younger people with certain disabilities, Medicare is available to help with the cost of medical care. With the right “gap” insurance plan, increased medical coverage may be achieved. Which way do you go? The ins and outs of Social Security benefits and Medicare can be hard to understand.

Medicare was created by the federal government in 1965 as an amendment to the Social Security Act of 1935. Prior to the amendment, known as Title XVIII, roughly a third of adults over 65 had no medical insurance. The program is provided regardless of income or medical history.

Medicare eligibility was expanded in 1972 to authorize additional benefits and to enable younger people having permanent disabilities the right to federally-paid medical insurance. Now Medicare serves almost eight million disabled Americans and 40 million retired Americans who are 65 or older. Medicare is managed by the Centers for Medicare and Medicaid Services. Social Security works with CMS by enrolling people in Medicare.

Upon enrollment in Medicare, you will typically get your red, white and blue Medicare card three months before turning age 65, or your 25th month of disability. Upon or before your 65th birthday you can sign up during the seven-month period that includes the three months both before and after the month you turn 65, plus the month you turn 65.

Example: if I turned 65 on August 1, I could sign up for Medicare anytime from May 1, through November. If you have already been receiving Social Security or Railroad Retirement Board benefits; have end-stage renal disease and are already receiving Social Security benefits; or you live in Puerto Rico and already have Medicare Part A, you have been automatically enrolled in Medicare.

Medicare has four parts: A, B, C and D, offering different types of coverage and different types of insurance. Originally, Medicare included Parts A and B. Part C was formally added by Congress with the Balanced Budget Act in 1997. Part D went into full effect in 2006.

Medicare Part A is the hospital insurance program, covering inpatient hospital care, skilled nursing facilities, home health and hospice care. Part A is generally applicable for admitted patients, and not for emergency room visits that do not result in hospital admission of less than two days. Most people receive Part A at no additional premium cost. If a retiree must buy Part A, he or she will pay up to $426 each month for the premium.

The Medicare Part A hospital inpatient deductible costs $1,216 for each benefit period. Days 1 – 60 have $0 coinsurance for each benefit period. Days 61 – 90 is $304 coinsurance per day for each benefit period. Days 91 and beyond is $608 coinsurance for each “lifetime reserve day,” after Day 90 during each benefit period (up to 60 days over your lifetime). Beyond lifetime reserve days, you pay all costs.

For home health-care services and hospice care, the person pays nothing additional. In home health care, you pay only 20 percent of the Medicare-approved amount for durable medical equipment.

Medicare Part B covers physician, outpatient, home health and preventive services, including x-rays, lab tests, chemotherapy and outpatient services. For a low monthly fee withdrawn from a retiree’s Social Security benefits every month, Part B covers what is called “reasonable and necessary medical services,” excluding vision, hearing, acupuncture and dental services, among others. This is not to be confused with “long-term care,” which is not covered under Medicare insurance. Long-term care has to be paid out-of-pocket, or by an insurance policy purchased by individuals before they need it.

The 2014 standard monthly premium on Medicare Part B is $104.90 for individual taxpayers filing with income of $85,000 a year or less; and if filing jointly, a couple can make no more than $170,000, a year. The amount of the monthly premium depends on your modified adjusted gross income. Higher income beneficiaries could have more deducted from their Social Security benefits monthly to pay their premium.

An individual will also pay a yearly $147 deductible for Part B covered services or supplies before Medicare begins to pay its share. Health care providers are obligated to inform patients if the Medicare rate, or assignment, is sufficient to cover their charge for services, and, if not, to inform patients of what their cost will be beyond the insured amount.

Doctors who don’t accept what is called the “assignment” may charge you more than the Medicare-approved amount for a service, but they can’t charge higher than 15 percent more than the Medicare fee schedule amount. This is called the “limiting charge.” The “limiting charge” only applies to certain services and doesn’t apply to some supplies and durable medical equipment.

If you disagree with a Medicare coverage, or payment decision, you have the right to appeal. For information on how to file an appeal, visit Medicare.gov/appeals.

Congress later added Medicare Part C. It is called Medicare Advantage, a private insurance plan offered to seniors over 65 and for younger Americans with disabilities, that is partially subsidized by the federal government. Medicare Part C, or Medicare Advantage, is sometimes made to look attractive by offering low monthly payments and, for instance, health club benefits. Part C enrollment generally requires the selection of a primary care physician, so potential members would be advised to ensure their physician is part of their chosen network. Original Medicare does not require a specific primary care physician. The Medicare Part C monthly premium varies by plan, with some specific cases covered by a full government subsidy. Although the manner of coverage may differ, Part C is generally required to meet or exceed the minimum benefits of original Medicare. Part C plans are required to have an annual out of pocket limit, something not required by Parts A and B. Except for emergencies, Part C networks are typically based on the area of the legal residence of the beneficiary. Most Part C plans are through health maintenance organizations (HMOs), although some are through Preferred Provider Organizations (PPOs). Generally, with HMOs, except for emergencies, it is more difficult to receive care out of your chosen network. With PPOs, receiving care out of network will generally incur increased costs.

This is important to understand: If you choose Medicare Part C, you also keep and must be enrolled in Parts A (hospital insurance) and B (medical insurance), including the payment of the annual Part B premium. Part C is essentially an addition to, not a replacement for, original Medicare. For most Americans, plans may be changed once a year; and more often for beneficiaries on certain plans and government assistance programs.

Medicare Part A and Part B makes up the original Medicare plan. As of 2013, more than 13 million people, or approximately 28 percent of beneficiaries, have opted for Part C in addition to Parts A and B. The percentage has grown steadily since Part C has gone into effect. The Kaiser Family Foundation estimates that nearly 16 million will be enrolled by the end of 2014.

Congress created Medicare Part D in 2003, which went into full effect in 2006. It is the portion of Medicare that covers outpatient prescription drugs and it is also privatized. The Medicare Part D monthly premium varies by plan.

Because there are “holes” in Medicare Parts A and B that are not paid for, an optional Medigap, or Medicare supplemental insurance, can be purchased to make a “seamless policy.” Medigap insurance will be covered in a future issue.

According to information from www.medicare.gov, the Affordable Care Act has made many improvements to Medicare. For example, if you have original Medicare (Parts A and Parts B), you can get a yearly wellness visit and other covered preventive care visits to your doctor.

If you have any questions about Medicare services, visit Medicare.gov, or 1-800-MEDICARE (1-800-633-4227). TTY users should call 1-877-486-2048. You can also discuss your Medicare and Medigap insurance policy with your local insurance agent.

Editor’s note: this article includes numerous corrections and changes from the print version in the July 31, 2014 edition.